Defend Trade Secrets Act (DTSA): What You Need To Know

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February 3, 2017
News | Patents

The DTSA federalizes the misappropriation of trade secrets. Before this Act, trade secret law was conducted only at the state level where each state had its own rules for protecting trade secrets. While the DTSA does not do away with the patchwork of state level protection, it does add a new federal standard for the protection of trade secrets.

A notable feature of this Act is the ability to seize property (ex parte seizure) without notice to the adverse party if the trade secret owner can show that such a seizure is “necessary to prevent the propagation or dissemination of the trade secret.” We note that the bar for invoking ex parte seizure is intended to be very high including for example, showing proof that adverse party would “destroy, move, hide, or otherwise make such matter inaccessible to the court.” While use of ex parte seizure may be difficult to evoke (and not without some risk in the event of a wrongful seizure) it provides a powerful tool for the protection of trade secrets.

If victorious in an action under the DTSA, the plaintiff may recover:

1. A plaintiff can recover its actual loss and also may recover any unjust enrichment resulting from the misappropriation not already compensated by the actual loss.

2. A plaintiff can recover a reasonable royalty for the unauthorized disclosure/use of the trade secret.

The DTSA will also make trade secret litigation a more efficient process. The Act requires that plaintiffs specifically identify the trade secret that they are attempting to enforce at the beginning of litigation. This is intended to substantially reduce discovery efforts by both sides and lead to quicker (less expensive) resolutions. The Act also includes an obligation for the court to keep the alleged trade secret described by the plaintiff secret:

The court may not authorize or direct the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential.

Although the above does provide safeguards, it does not provide an absolute guarantee that trade secret being asserted will be kept a secret by the court. For this additional reason, it is now more important than ever to ensure your internal trade secret procedures are up-to-date, including proper documentation of such trade secrets and records showing the maintenance of their secrecy.

The net result of the Act is that, in cases where misappropriation is clear, owners will likely be able to obtain a relatively fast and robust remedy (damages and seizure). However, fishing expeditions into competitors’ operations in hopes of finding suspected trade secret theft will likely be more difficult, if not impossible. Additionally, asserting misappropriation where one’s own internal records of the asserted trade secret have not been properly created and maintained can come with some risks.

As a final note, the DTSA also provides for whistleblower protection. This provision deserves special attention as it requires that employers notify their employees of the protections under this Act. Failing to do so will result in the employer being unable to recover exemplary damages or attorneys’ fees from the employee if the employer successfully sues the employee under the DTSA. If you have any questions regarding the requirements of the law, please let us know. If trade secret protection is relied upon by your company in any way, we strongly recommend that you contact counsel, as soon as possible, to review and update your employment and confidentiality agreements to include disclosure of the whistleblower protection provided by the DTSA.

Please note that in the first case decided under this Act (Henry Schein, Inc. v. Cook) the court held in favor of the plaintiff and issued a Temporary Restraining Order followed by an Injunction prohibiting a former employee from contacting some of the plaintiff’s clients. In this case, the former employee had collected confidential information and trade secret documents (client lists) by keeping her laptop after termination, forwarding emails to a personal account, and accessing the plaintiff’s computer system to obtain customer data.

Dean v. City of Miami Beach et al. provides an example where the complaint was dismissed on the grounds that the plaintiff did not adequately protect the alleged trade secret material. In this case, a mistakenly unredacted document containing the alleged trade secret material was provided and then passed on to others by the defendant. The defendant was required to pass along the information to those that received it as a condition within a public contract.

The Court found no misappropriation and dismissed the case.

From the caselaw that has emerged thus far, it is clear that proper establishment and maintenance of trade secret material is critical in one’s ability to seek protection under the DTSA. If your company owns trade secrets (or would like to begin to) that are essential to your business our firm is happy to help you evaluate/formulate your internal practices to maximize your ability to effectively defend against their misappropriation. This Act makes proper internal management of trade secrets more critical than ever both when seeking to enforce one’s own trade secrets and when defending oneself against a potential ex parte seizure by a competitor. If you have any questions or concerns about your existing policies, please let us know.

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